Labelling the tea sectors in Ha Giang and Lai Chau -
Master Thesis Joris Kok
University of Twente December 2009
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Organizational Details
Graduate student
Name: Joris A. Kok
Principal of the research
Principal: Mr. Paul Weijers
Organization: SNV Netherlands Development Organisation Graduation committee
Supervisors: Prof. dr. ir. E.J. de Bruijn Ir. S.J. Maathuis
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Preface
This thesis finalizes my Master of Science in Business Administration at the University of Twente, the Netherlands. The research was carried out between February and December 2009 at SNV Netherlands Development Organisation in northern Vietnam and in the Netherlands.
The main subject of the research is food labelling in the Vietnamese tea sector with an emphasis on geographical labelling and organic labels.
I would like to take this opportunity to thank Professor Erik Joost de Bruijn and Stephan Maathuis from the University of Twente for their guidance throughout this research project and their continuous support. A special word of gratitude also goes out to Paul Weijers from SNV Vietnam for making this endeavour possible, his personal support and professional guidance in Vietnam. The research could not have taken place without the support of Ninh Van Nghi from RUDEC, whom assisted me during my fieldwork in rural Vietnam. More general, I would like to thank the staff of SNV Vietnam and RUDEC for their support. Finally, I would like to thank my parents, brothers and friends for their support.
Joris Kok,
The Netherlands, December 2009
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Summary
The Vietnamese tea sector is export driven. Vietnamese tea is generally perceived as a low quality tea and attains a low price on the international market. The unrefined overall production process of exported tea and over usage of pesticides are at the root of the quality problem. The tea sectors in the Vietnamese provinces of Ha Giang and Lai Chau suffer from the same problems.
SNV (a Dutch development organization) and their partners concluded that adhering to a specific production process and the introduction of a label that is related to this process could be an effective tool to increase the quality of tea from Ha Giang and Lai Chau. The choice was made to investigate the introduction of either a Geographical Indication (GI) for Snow Tea (this is a famous tea from the border region between Vietnam and China) or an organic label for organically grown tea.
This raises the question of how SNV and its partners should support this introduction.
A multiple case study was designed that uses secondary data to construct a theoretical framework. The framework in turn provides the necessary input to formulate propositions about the topics of the research. These propositions stood at the basis of formulating the required conditions that contribute to the introduction of a GI or an organic label in the Vietnamese tea sector. Primary data was collected (through interviews and observations) to provide an overview of the actual conditions in Ha Giang and Lai Chau in relation to the introduction of a GI or an organic label. Pattern matching is the technique used to analyse the data. From the theoretical framework a pattern is identified that stipulates the perfect situation for the introduction of either a GI or organic label. This pattern is compared to the pattern that is based on the empirical realty. This comparison identifies lacking required conditions and provides input for the support programme or ‘scope’ that SNV and its partners should have.
A total of 40 required conditions from various sources are identified that all contribute to the introduction of a GI or an organic label. By comparing the 40 actual conditions against the 40 required conditions it can be concluded that for both Ha Giang and Lai Chau the successful introduction of a GI for Snow Tea is not feasible.
For both Ha Giang and Lai Chau it can on the other hand be concluded that the successful introduction of an organic label for Snow Tea is feasible. However, there are a large number of lacking conditions that need to be improved or controlled.
Hung Cuong Tea Company and Than Uyen Tea Company should play a leading role in respectively Ha Giang and in Lai Chau. Farmer groups should be selected that are located as close to each other as possible. Knowledge in these producer groups and in the supporting parties on organic farming methods, technology, rules, certification methods and the organic market are lacking and should be improved.
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In addition, • 1) an organic production site needs to be identified and documented, taking in account contamination factors like other crops and irrigation channels, • 2) farmer and worker training schedules need to be developed, • 3) a sales channel needs to be selected and developed, and finally • 4) control and production tracking systems need to be set up within the producer groups to monitor the isolated organic production chains.
After conversion to 100% organic production methods, a three year conversion period will start. During this period the producer group has to produce in accordance with organic rules while it may not yet market its products as organic.
After the three year conversion period and after all involved actors are certified, organic certification is attained and products can be labelled and marketed as such.
Converting to organic cultivation methods will prove to be a challenging task for the producer group. However, by working together with the supporting parties and the local authorities, this conversion will lead to a significant income increase for all actors in the organic value chain.
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Table of contents
Organizational Details --- ii
Preface --- iii
Summary --- iv
List of Abbreviations ---vii
1. Research background and design --- 1
1.1 Introduction of actors --- 1
1.2 Research motive and objective --- 3
1.3 Problem formulation --- 4
1.4 Research questions --- 4
1.5 Nature of the research --- 4
1.6 Research methodology --- 5
1.7 Research quality --- 9
1.8 Research structure --- 11
2. Tea sector overview --- 13
2.1 The global tea industry and the international position of Vietnam --- 13
2.2 Overview of the Vietnamese tea sector --- 15
2.3 Overview of the tea sector in Ha Giang --- 18
2.4 Overview of the tea sector in Lai Chau --- 19
2.5 Conclusions --- 21
3. Theories and best practices --- 23
3.1 Theories on food labelling --- 23
3.2 Best practices with food labelling --- 27
3.3 Conclusions --- 36
4. Actual conditions --- 41
4.1 Actual conditions in Ha Giang province --- 41
4.2 Actual conditions in Lai Chau province --- 43
5. Gap analysis--- 47
5.1 Gap analysis for Ha Giang --- 47
5.2 Gap analysis for Lai Chau --- 49
6. Proposed interventions --- 52
7. Conclusions and recommendations --- 58
7.1 Conclusions --- 58
7.2 Recommendations --- 58
7.3 Reflection --- 60
References --- 61
Appendices --- 65
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List of Abbreviations
ADB Asian Development Bank
ADDA Agricultural Development Denmark Asia CTC Crush Tear Curl
DARD Department of Agricultural and Rural Development FAO Food and Agriculture Organization of the United Nations GI Geographical Indication
GTZ Deutsche Gesellschaft für Technische Zusammenarbeit
ha hectare
IBS IFOAM Basic Standards ICS Internal Control Systems
IFOAM International Federation of Organic Agriculture Movements IPM Integrated Pest Management
IPSARD Institute of Policy and Strategy for Agriculture & Rural Development ISO International Organization for Standardization
MARD Ministry of Agriculture and Rural Development NGO Non Governmental Organization
RUDEC Rural Development Center SHCC Small Holders Cash Crop
SNV SNV Netherlands Development Organisation
TRIPS Trade Related Aspects of Intellectual Property Rights VINATEA Vietnam National Tea corporation
VITAS Vietnam Tea Association VND Vietnamese Dong
WTO World Trade Organization
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1. Research background and design
Chapter 1 provides the background of the research and discusses the research design.
The different actors and cause for the research are explained. Hereafter, the research objective and main problem are described. From the main problem research questions are derived. The research design then describes how the answers to these questions are obtained. Finally, the research structure is discussed.
1.1 Introduction of actors
SNV Netherlands Development Organisation (SNV) is a Dutch development organization headquartered in The Hague. SNV aims to combine idealism and proven expertise to help develop local organizations that have the potential to significantly contribute to the development of their country. SNV is a capacity builder that focuses on two areas of development work: • 1) generating production, income and employment opportunities, and • 2) improving access to basic services.
The ultimate goal of SNV is to reduce poverty worldwide. SNV positions itself differently in the value chain on every project on either a regional, country or a local level, based on where their efforts will be most effective (www.snvworld.org).
With a total of over 1500 professionals SNV is active in 32 countries around the world divided over five regions: Asia, Balkans, East & Southern Africa, Latin America and West & Central Africa. The organizational headquarters in The Hague focuses on strategy, human resources and finance. Figure 1.1 portrays the organizational structure of SNV.
Figure 1.1: Organization chart SNV (www.snvworld.org)
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SNV is mainly funded by the Netherlands Ministry of Foreign Affairs. A smaller contribution is generated through other organizations, such as: The European Union, The United Nations Development Programme, World Bank and various other development organizations. In 2007, the total income amounted to almost € 100 million.
SNV Asia is active in Bangladesh, Bhutan, Cambodia, Laos, Nepal and Vietnam. SNV Asia offers services in the following sectors: • Renewable energy/Biogas, • Water, Sanitation and Hygiene, • Smallholder Cash Crops, • Forest Products, and • Pro- poor Sustainable Tourism. As a part of SNV Asia, SNV Vietnam also supports these five sectors. The Smallholder Cash Crop (SHCC) sector aims their activities at small scale farmers that grow a crop with an economical motive, not to use it themselves.
Within this SHCC sector, SNV supports four different value-chains, among which the tea value-chain. This research is part of tea value chain development programme.
SNV Vietnam is based in Hanoi and focuses its attention mostly on the northern part of the country. In case of the tea sector the focus is specifically on the provinces of Ha Giang and Lai Chau. The focus of this research is also on these two provinces. Figure 1.2 provides an overview of the locations of these two provinces within Vietnam.
The Ministry of Agriculture and Rural Development (MARD), is the highest governmental body that is responsible for rural development in Vietnam. The Institute of Policy and Strategy for Agriculture & Rural Development (IPSARD) is an advisory agency for the MARD with the objective to carry out research and provide strategic advice to MARD in agriculture and rural development-related areas such as commodity sector development and policies for disadvantaged rural areas. The Rural Development Center (RUDEC) is a department of IPSARD and has expressed their interest to cooperate with SNV in research and development in the tea sector.
SNV and the local authorities of Ha Giang and Lai Chau intend to cooperate in the further development of the tea sector. This means that both actors want to improve the tea sector in such a way that more income is gathered in the rural province and subsequently living conditions will improve in a structural manner. Simultaneously, the private sector firms Hung Cuong Tea Company (HCTC) in Ha Giang and Than Uyen Tea Company (TUTC) in Lai Chau, showed keen interest to cooperate with SNV in the development of the tea sector at large. All these stakeholders aim at developing the tea sectors in Ha Giang and Lai Chau.
Figure 1.2: Locations of Ha Giang and Lai Chau in Vietnam
Page | 3 1.2 Research motive and objective
The Vietnamese tea sector is mostly export driven. Around 70% of the total tea produce is exported. However, Vietnamese tea generally receives a very low price on the international market (Van der Wal, 2008). The Vietnamese Teas Association (VITAS) acknowledges that this low price signals a quality problem. Vietnamese tea is perceived as being of low quality. Two important reasons for this perceived low quality are: • 1) the overall production process of exported tea is often not very refined, and • 2) Vietnamese tea generally suffers from over usage of pesticides (Ho Chi Minh City Department of Industry and Trade, 2007).
SNV has conducted a tea value-chain assessment in Ha Giang province (SNV, 2008) and an analysis of the Lai Chau green tea sector (Degail, 2007), and concludes that the quality problems of the tea sector in Ha Giang and Lai Chau are similar to the situation in Vietnam as a whole (SNV, 2008). One of the recommendations of the value-chain assessment is that adhering to a specific production process and the introduction of a label that is related to this process could be an effective tool to increase the perceived quality. Since tea is a food product, this process is generally referred to as ‘food labelling’. The rationale behind food labelling in order to increase quality is covered in chapter 3.
There are various types of food labels (Van Dam and Van Trijp, 2006). From these labels, SNV concluded that introducing either a Geographical Indication (GI) for Snow Tea (this is a famous tea from the border region between Vietnam and China) or an organic label for organically grown tea are suitable tools. At the onset of this research it was still undecided if either only one of these two label types will be introduced, or both.
The exact definitions of these two food label types are given in sub-chapters 3.1.2 and 3.1.3. For now it suffices to understand that a GI is a sub-type of a geographical label.
Geographical labels communicate the sourcing of a product or attributes of the product within a defined geographical location (Anders and Caswell, 2008: p. 2).
Two famous examples are Champagne wine from the Champagne area in France and Parma ham from the Parma region in Italy. These products must be produced in accordance with specific methods and must be produced within a certain region.
Organic labels may only be applied to products that are grown organically. This very roughly means that these products are grown free from chemical or synthetic substances.
After SNV’s choice for these two food label types, the next step was to find out how these labels are to be introduced to achieve optimal result. This brings us to the objective of this research.
The objective of this research is to investigate the possibilities, within the capacity of SNV and its partners, for the introduction of either a Geographical Indication for Snow Tea or an organic label for organic tea in order to increase the perceived quality of tea from Ha Giang and Lai Chau.
Page | 4 1.3 Problem formulation
With the research objective defined, the main problem can be defined. The main problem of this research is:
How should SNV and its partners support the introduction of either a Geographical Indication for Snow Tea or an organic label for organic tea for the tea sectors in Ha Giang and Lai Chau?
1.4 Research questions
The research questions stated in this sub-chapter are a systematic breakdown of the main problem statement from subchapter 1.3. Together, the answers to these questions will provide the answer to the main problem. The research questions are:
What required conditions contribute to the introduction of a Geographical Indication or an organic label in the Vietnamese tea sector?
To which extent do the tea sectors in Ha Giang and Lai Chau fulfil the required conditions?
What lacking required conditions in Ha Giang and Lai Chau should be improved in order to introduce a Geographical Indication or an organic label?
1.5 Nature of the research
In order to find an answer to the research questions, an approach is needed on how the research was performed. This approach is also referred to as the ‘research design’. The nature of the research has to be identified before a fitting design can be selected.
The first categorization that can be made is that this is an applied research. This research is of direct and immediate relevance to managers, addresses issues that they see as important, and is presented in ways that they understand and can act on (Saunders, et al., 2007: p. 7). This implies that the findings of this research are of practical relevance and value to SNV and its partners, and its findings have to be presented with a focus on practical usefulness rather than academic discussion.
The purpose of the research is twofold. It can best be described as a mix of exploratory and explanatory research. The exploratory part of the research is the prelude to the explanatory part. Research questions 1 and 2 are aimed at gaining insights into the problem at hand and thus exploratory. “Exploratory research is particularly useful if you wish to clarify your understanding of a problem, such as if you are unsure of the precise nature of the problem” (Saunders, et al., 2007: p. 133).
Research question 3 seeks to intervene in the causal relationships of the tea value chains in Ha Giang and Lai Chau, and is of an explanatory nature (Saunders, 2007).
This research is deductive in its approach. Problems are analysed and a hypothesis is designed as to what is needed to develop the tea sectors in Ha Giang and Lai Chau in
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relation to the proposed interventions. At this point this research diverts from the common path that deductive research follows (Saunders, 2007). Due to time constraints the hypothesis cannot be tested and the outcomes cannot be examined as an integral part of this research. As a result, until the hypothesis has been tested, there is an inherent uncertainty involved with the results of this research.
Having determined the nature of this research; research methods, sources of information and research tools are chosen. The configuration of these different aspects is referred to as the ‘research methodology’.
1.6 Research methodology
The research method of choice is a case study. The definition given by Saunders, et al. (2007: p. 139) seamlessly applies to this research. They state that a case study is “a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence”. The choice for a case study approach is further motivated by the nature of the research questions. The exploratory research questions are not a decisive factor in this, however the explanatory research question is. Research question 3 requires a study of operational links within the research context that is best served by a case study (Yin, 2003). The context of the research is largely unfamiliar terrain in relation to the research topics. In addition, the extent of control over behavioural events and the degree of focus on contemporary events reinforces the choice for a case study approach (Yin, 2003). It is undesirable to have control over behavioural events that are part of the research context since the research aims to intervene in a value chain without creating a situation that is unbalanced without the influence of SNV and its partners. All these factors considered, a case study is the research method of choice that prevails over other methods (e.g. experiments and surveys).
This case study focuses on two cases, namely the tea sectors in Ha Giang and Lai Chau. This is referred to as a ‘multiple case study’ (Saunders, et al., 2007). In general, evidence from multiple case studies is more compelling that from single case studies and as a bottom line rule, a researcher should always choose for a multiple cases study if this is possible (Yin, 2003). In this particular case the choice for a multiple – rather than a single case study stems from the intentions of the research principal.
SNV wants to put the outcomes of this research into practice in the two provinces.
Furthermore the two cases are expected to produce similar results, thus increasing the strength of the evidence (Yin, 2003).
Case studies have to deal with a certain amount of prejudice concerning their scientific validity. However, when properly executed, a case study can be generalized to theoretical propositions. Yin (2003) provides a comprehensive framework for any researcher conducting a case study and is also used to guide this research.
The two sections hereafter will describe in more detail the data collection techniques used and the methods of data triangulation and analysis.
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This section describes what data will be collected, how data will be collected and how this data will contribute to the goal of the research. Data collection (1) directly serves the exploratory part of this research (research questions 1 and 2) that seeks to gain insight into the problem at hand, and (2) is at the basis of the explanatory part of this research (research question 3) that seeks to design an intervention in the causal relationships of the tea value chains in Ha Giang and Lai Chau.
From the background of the research and the research questions relevant topics are derived. These topics can be divided into three categories: • 1) the international and Vietnamese tea processing sectors, • 2) the underlying principles and theories of food labelling, and • 3) best practices with food labelling.
Secondary data is gathered on these three categories in the form of a collection of documentary data (e.g. reports, public records, books and scientific articles).
Secondary data is data that has been collected for some other purpose than this research (Saunders, 2007: p.607). The researcher performed an exhaustive search in on-line scientific databases and university libraries. Careful study of the material during the search confirms that the three topics are comprehensive for this research.
The comprehensiveness of the collected data was considered to be maximized when search results recurred. In addition to the data collected from this literature search, the researcher also studied material provided by SNV; this material consisted mostly of studies of the Vietnamese tea sector (the previously mentioned 1st category). This total collection of relevant secondary data is hereafter referred to as the “theoretical framework”.
The theoretical framework provides the necessary input to form propositions about the topics of the research. These propositions stood at the basis of formulating the required conditions that contribute to the introduction of a GI or an organic label in the Vietnamese tea sector.
In addition, the theoretical framework provides insight into the global- and Vietnamese tea processing sectors. Although these insights are insufficient to construct a complete overview of the relevant conditions of the tea sectors in Ha Giang and Lai Chau, they did provide the researcher with valuable insights as to what conditions required particular scrutinizing. Primary data was required to complement these insights.
The final functions of the theoretical framework are to gain valuable insight into the background, objective and problem of this research and to identify sources of primary data collection that were interviewed or consulted during the field research.
The theoretical framework is presented in chapters 2 and 3.
Primary data is collected specifically for this research and not for any other purpose (Saunders, et al., 2007). Primary data collection for this research is aimed at providing an overview of the actual conditions in Ha Giang and Lai Chau in relation to the
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introduction of a GI or an organic label in the Vietnamese tea sector. Furthermore, it will test any conclusions drawn from the information on the international and Vietnamese tea sectors that are derived from the secondary data. Primary data was gathered using the following methods:
Semi structured interviews – This method provides the bulk of primary data.
Vietnamese tea sector actors provide valuable information and opinions on the research at hand. Semi structured interviews are the interview method of choice, these aim at following the needed line of inquiry while keeping the interview open and going, a suitable method for case studies (Yin, 2003).
In the both the cases of Ha Giang and Lai Chau it was impossible and undesirable to interview the entire tea industry populations. Therefore a sample of interviewees was selected. However, due to time constraints, availability issues of potential interviewees and the challenging working environment in the field; the sample selection method was in some cases at the mercy of the situation in the field. In practice this for example meant that farming locations were too remote to visit or local authorities would hinder the researcher to visit and interview farmers and tea processors.
The theoretical framework provided the researcher with the knowledge needed to select a comprehensive sample. For both cases a population sample was selected that (if existent) contained: • 1) the private sector lead firm, • 2) farmers employed by the private sector lead firm, • 3) farmers under contract,
• 4) unlinked farmers, • 5) tea collectors, • 6) tea traders, • 7) (tea) farmer cooperatives, • 8) small household tea processors, and • 9) relevant local authorities. Priority was placed on interviews with the private sector lead firm and the three types of tea farmers, since they are at the basis of the value chain and the project focal point of SNV’s development activities. In addition to providing the knowledge to select different actors, the theoretical framework signalled where the tea sectors are concentrated in Ha Giang and Lai Chau, thus limiting the size of the area of research. Overviews of these limited areas are provided in appendices 1 and 2.
Prior to the field research a questionnaire was constructed by the researcher.
As mentioned, the interview method of choice is semi-structured. Thus this questionnaire served as a guideline for an open conversation rather than a strict method of operations. The questionnaire is presented in appendix 3.
• Direct observations - Observations are amongst others: farmer group meetings, farming and production practices and project meetings. Data on these phenomena are quickest and most reliably gathered through direct observations.
• Participant observations - The researcher is considered to be an external consultant that is closely linked to the research principal. The research
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principal in turn is indirectly involved in the value chain being studied. Thus the researcher observed participants in the value chain. Participant observation is a tool for indirect value chain actor evaluation.
• Documentation study - As with all case studies, documentation is highly relevant for this research (Yin, 2003). Relevant documentation types are:
communiqués, agendas, administrative documents and media announcements. Documentation is mostly used for data triangulation with other sources of evidence.
A case study database is maintained by the researcher in order to organize and document the collected data. This is also a necessity if a chain of evidence is to be maintained throughout the report (Yin, 2003: p. 105).
1.6.2 Data triangulation and case study analysis
As will be discussed in sub-chapter 1.7, in order to increase construct validity, case studies ideally need multiple sources of evidence for one phenomenon. The outcomes of these sources have to be tested against each other. This process is called data triangulation. Yin (2003: p. 98) describes triangulation as “converging lines of inquiry”. An important note is that multiple sources of evidence should lead to only one conclusion, and not a separate conclusion for every source of evidence. For this research this means that a single phenomenon like “Strong vertical and horizontal linkages in the value chain” (as will be discussed in chapter 3) needs to be evaluated using multiple sources of evidence. These can be for example: semi-structured interviews and participant observations.
There are no fixed methods or tools for analysing case study results. Yin (2003) provides some guidance on this subject. Three analysis strategies can be identified of which one is ‘relying on theoretical propositions’. This is the analysis method of choice for this research. This choice originates from propositions derived from the theoretical framework which are at the basis of the research. Since they are at the basis of the research, the propositions will help to focus attention on certain data and ignore other data (Yin, 2003: p. 112). The process of deriving propositions from the theoretical framework should be considered as a recurring process rather than linear.
To illustrate this further, the propositions in turn also shaped the research questions and guided the literature review. Eventually, this recurring process also leads to new propositions (Yin, 2003). These theoretical propositions have shaped the data collection plan and signalled relevant analytic strategies. Basically, theoretical propositions help focus on what data is of interest and what data can be ignored, thus guiding the analysis of this case study.
Now that the data analysis strategy is chosen, a more tangible analysis technique has to be chosen to analyse the data. Yin (2003) provides five techniques of which one is
‘pattern matching’. This is the analysis technique of choice for this research because it is a suitable technique for strengthening the internal validity for a (partly)
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explanatory case study (Yin, 2003), as in the case of this research. Pattern matching works as follows:
From the theoretical framework, a pattern can be identified. This pattern stipulates the perfect situation for the introduction of either an organic tea label or a GI for Snow Tea. This pattern is defined as the 'predicted pattern' since it is based on the propositions predicted by (or deduced from) the theory. If the predicted pattern, or patterns in this case, are met, an ideal situation exists for the introduction of a GI or an organic label. The predicted pattern relates to research question 1.
The predicted patterns are then compared to the patterns that are based on the empirical reality as it is investigated by the researcher. These empirical patterns are also constructed on basis of indicators derived from the propositions of the theoretical framework, making a comparison between the two pattern types possible.
The empirical patterns relate to research question 2. A comparison between the two pattern types will identify lacking required conditions in the empirical pattern. This will answer research question 3. The lacking required conditions identify a gap between the current situation and the desired situation. Hereafter, this is referred to as a “gap analysis”.
The position of SNV and its partners is an integral part of the above described analysis. The researcher can thus, in consultation with SNV and its partners, identify the support programme or ‘scope’ that they should have in improving these lacking required conditions. This will ultimately lead to answering the main problem.
1.7 Research quality
The quality of this research is measurable through four different indicators that are identified by Yin (2003). These are: construct validity, internal validity, external validity and reliability.
Construct validity - This concerns the validity of operational measures for the concepts that are studied. In order to maximize construct validity, this research: • 1) uses multiple sources of evidence, • 2) maintains a clear chain of evidence throughout all its stages, and • 3) the outcomes of the research were reviewed and validated during a workshop by experts and direct and indirect value chain actors.
Internal validity - This refers to the validity of (proposed) causal relationships, and thus only applies to the explanatory part of this research. It has to be made sure that not some other influence than the proposed interventions has an effect on the measured results. Internal validity is determined by the analysis of data that is elaborated upon in section 1.6.2.
Internal validity can only be judged after the hypotheses have been tested in reality. The hypotheses designed during this research cannot be tested as an integral part of this research.
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External validity - This refers to the generalization of the case study beyond the case itself. For this particular research it refers to whether the recommended interventions in the value chain are also applicable to other locations than Ha Giang and Lai Chau.
Apart from guiding the collection of primary data, the theoretical framework (which is based upon secondary data) will serve as a mirror to which the generalization of the results will be done. Analytic generalization is the generalization method of choice (Yin, 2003). Case studies are comparable to laboratory experiments. Based on this comparison, the results of this research are compared to the theory it was based upon. If the outcomes of the research support the theory, replication and external validity may be claimed (Yin, 2003: p. 33). In addition, the two cases are considered to be typical cases because; the north of Vietnam has more provinces like Ha Giang and Lai Chau based on the following characteristics: • 1) the province is relatively poor, • 2) is mostly rural, and • 3) has a large tea sector. More than 15 other northern provinces1 can be identified that have these same characteristics.
Reliability - This refers to the outcomes of the research if it were repeated by a different researcher according to the same procedures. The outcomes should be identical in order to claim reliability. In order to increase the reliability of this research, procedures will be documented in a case study protocol. The study protocol contains the following four sections:
o Case study project overview – This section should contain background information, substantive issues and relevant readings about the issues.
Furthermore, this section contains the hypotheses and broader theoretical relevance of the research. These topics are elaborated upon in chapter 1 of this report.
o Field procedures – This pertains to the precautions that have to be taken in order to facilitate data gathering. Access to key interviewees will be maximized by linking the student researcher with a Vietnamese counterpart from the RUDEC. Local authorities and some key stakeholders in the Ha Giang tea value chain have already spoken out their support to this research. Also, the network of SNV staff in Vietnam will be available to the researcher.
o Case study questions – The case study questions have been covered in sub-chapter 1.4 of this report.
o Case study report guide – The report guide is covered in sub-chapter 1.8 of this report.
1 Lai Chau, Lao Cai, Cao Bang, Lang Son, Tuyen Quang, Yen Bai, Vinh Phuc, Phu To, Bac Can, Bac Giang, Thai Nguyen, Tam Tuyen Wuang, Thanh Hoa, Nghe An and Ha Tinh (Tran Cong Thang, et al., 2004)
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The four indicators of research quality discussed in this section give an outline of how the quality of this research is guaranteed.
1.8 Research structure
This sub-chapter provides an overview of the consecutive steps that will be taken in order to find an answer to the main research problem. Figure 1.3, provides a graphical representation of the research steps that are linked to the corresponding research questions and chapters in this thesis.
Tea sector overview Ch. 2
Theories and best practices Ch. 3
Actual conditions Q. 2 / Ch. 4
Required conditions Q. 1 / Ch. 3
Gap analysis - Q. 3 / Ch. 5
Proposed interventions – Main problem / Ch. 6 Theoretical framework
Research conclusions and recommendations
– Ch. 7
Figure 1.3: Research structure
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The light blue arrows in figure 1.3 that connect “Tea sector overview” and “Theories and best practices” with “Actual conditions” indicate a partial relation. The information gathered in the “Vietnamese tea sector overview” only provides initial insights into the actual conditions in Ha Giang and Lai Chau. These insights have to be complemented with primary data.
Amongst the “Theories and best practices” are also experiences from Vietnam, these experiences will both provide input for the “Required conditions” as well as provide initial insights into the actual conditions in Vietnam, and thus also for Ha Giang and Lai Chau. These insights also have to be complemented with primary data.
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2. Tea sector overview
This chapter provides detailed insight into the global and Vietnamese tea sector at large and the situation in Ha Giang and Lai Chau. By providing this, valuable insight into the background, objective and problem of this research is gained. Furthermore from this overview insight into the empirical pattern, as described in sub-chapter 1.5, is gained, if these insights match with the conclusions drawn from the field research, this will strengthen the outcomes of this research. Finally, this chapter identifies sources of primary data collection that were interviewed or consulted during the field research.
2.1 The global tea industry and the international position of Vietnam Over the last 30 years the global production of tea has doubled, and it continues to grow up to the present day. Global demand for tea is also growing, but in comparison it is lagging slightly behind supply, causing a situation of oversupply (Van der Wal, 2008). A situation of oversupply always leads to a reduction of prices.
If a certain production chain (like the Vietnamese tea chain) does not distinguish itself from other production chains, it is destined to suffer from a decreasing price.
Vietnam is a noteworthy tea producer. In 2006 the country ranked 7th on the list of largest tea producing countries and 5th on the largest tea exporting countries. Table 2.1 gives an impression of Vietnam’s position amongst the world leading tea producing and exporting countries.
Country Production in
metric Tons Share Export in
metric tons Share
China 1,028,064 29% 286,594 18%
India 955,907 27% 200,866 13%
Sri Lanka 310,822 9% 314,915 20%
Kenya 310,607 9% 313,721 20%
Turkey 142,000 4% 5,500 0%
Indonesia 140,049 4% 95,339 6%
Vietnam 132,000 4% 106,000 7%
Japan 99,500 3% 1,681 0%
Argentina 80,000 2% 70,723 4%
Bangladesh 53,265 2% 4,794 0%
Malawi 45,010 1% 41,962 3%
Uganda 36,726 1% 32,699 2%
Tanzania 31,348 1% 24,132 2%
Iran 20,000 1% 6,000 0%
Taiwan 19,345 1% 1,962 0%
Other 12,157 4% 64,920 4%
Total 3,532,800 1,571,808
Table 2.1: Main tea producing countries in the world (Van der Wal, 2008)
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Depending on the stage of fermentation, there are three basic varieties of processed tea: green, oolong and black. These three varieties can be subdivided into orthodox (hand rolled) types and Crush Tear Curl (mechanically processed). Crush Tear Curl (CTC) teas are in general of lower quality and are more suitable for tea bags (Rasmussen and Rhinehart, 1999).
Vietnam exported 70% of its total tea production in 2007. Of this export 60% was black tea (mainly to Pakistan, India and Russia), 20% green tea (mainly to Taiwan and China) and another 20% were oolong and specialty teas. Of all green tea produced, almost 95% is consumed domestically. The situation for black tea is the other way around, 99% of the production is destined for export. Vietnam exports mostly unlabelled orthodox black tea in bulk. Branding and packaging are uncommon for exported tea (Van der Wal, 2008).
The total export value for Vietnamese tea in 2006 was US$ 115 million (Van der Wal, 2008). A simple calculation indicates that on the international market Vietnamese tea receives a very low price (US$ 1085 / metric ton). Table 2.2 provides an overview of all noteworthy tea exporting countries.
Country Export price in US$ / metric ton
Japan 16365
Taiwan 7390
Sri Lanka 2638
Kenya 2091
India 1905
China 1877
Indonesia 1411
Tanzania 1366
Malawi 1171
Turkey 1145
Uganda 1101
Vietnam 1085
Argentina 692
Table 2.2: Tea export value (Van der Wal, 2008)
From 1992 to 2004, the price paid for exported Vietnamese tea was only 68% of the average global price. The VITAS states that the low price on the international market indicates a quality problem for Vietnamese tea. Better quality tea has to be produced and diversification has to take place in order to increase the price of Vietnamese tea on the international market (Ho Chi Minh City Department of Industry & Trade, 2007). When considering the current situation of global oversupply in the tea market, this applies even more. Over usage of pesticides has been mentioned as a reason for the perceived low quality (Ho Chi Minh City Department of Industry & Trade, 2007).
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Vietnamese fresh tea yields are in general quite impressive, especially in the upland regions. However, dried tea yields are low when compared to other tea producing countries. Vietnam achieves an average of 0.8 to 1.2 ton/ha, while other producing countries achieve higher yields, such as Kenya (2.2 ton) India (1.8 ton), Japan (1.7 ton), Sri Lanka (1.5 ton) and Taiwan (1.1 ton) (Tran, et al., 2004). This indicates a sub- optimal processing side of the whole production process, while the actual physical growing conditions (e.g. soil and plant species) are quite good.
2.2 Overview of the Vietnamese tea sector
The Vietnamese tea value chain is documented thoroughly by Tran, et al. (2004) in an Asian Development Bank (ADB) study. The provinces of Thai Nguyen, Phu Tho and the city of Hanoi were chosen as the sites of the fieldwork. Phu Tho is more suitable for black tea production and Thai Nguyen for green tea. Together with Hanoi, where the most prominent tea exporting companies are based, these provinces provide a diverse overview of the tea sector at large in Vietnam.
Over 70% of all tea in Vietnam is grown by smallholders. The remaining 30% is grown by state enterprises and private companies (Tran, et al., 2004). Smallholders are the dominant tea growing party and their share of the total production continues to grow (CIA world factbook, 2005).
Although it only involves three activities (production, processing and sales), the national value chain is complex. The complexity stems from the many actor types that are active in all stages, and the many linkages between the actors. The graphical depiction of the value chain is cumbersome and does not provide a clear overview of the tea sector. Hereafter, the different actors in the tea sector are presented.
Producers (or farmers) can be subdivided roughly into:
1. Unlinked farmers - These farmers are the most numerous of all farmers. They produce and sell (fresh) tea on the open market to traders and processors.
Basically all their relations are at arm’s-length;
2. Contract farmers – These farmers own their land but are contractually bound to provide (a portion) of their produce to processors. They receive different forms of assistance from the processors;
3. Worker farmers – These farmers work on state farms or for other companies.
They are allocated a tract of land for up to 50 years and grow whatever their parent company dictates. In comparison to other farmers they receive a high amount of assistance and other benefits;
4. Cooperative farmers – A small number of farmers are members of tea farming cooperatives.
The ADB study identified three farmer cooperatives that are amongst the better organised farmer groups. These cooperatives can potentially produce higher quality teas. There are multiple reasons for this. The first is that around 85% of cooperative
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members have received Integrated Pest Management (IPM) training. IPM training educates the farmer on responsible usage of chemical and synthetic substances in relation to tea farming. Secondly, in general member farm lands are adjacent to each other; this decreases contamination from neighbouring ‘conventional’ farmers and provides irrigation services more easily. Finally, cooperatives have more experience in bringing products to market. Overall, cooperative farmers have the potential to get a foothold in niche markets and earn higher premiums (Tran, et al., 2004).
An important notion concerning the distribution of margins in the value chain is that farmers obtain small margins in comparison to processors and traders. Farmers by themselves therefore have low access to funds (Tran, et al., 2004).
Processors can be subdivided roughly into:
1. Non-registered household processors – These are very common in the tea value chain, especially in the upland regions. They process their own tea and that of other farmers. On average they produce 15 tons of dried tea per year.
They mainly produce green tea. Their numbers are increasing;
2. Registered household processors – With an average output of 240 tons per year these processors are larger than their non-registered counterparts.
However, their numbers are also far lower;
3. Private processors – These are again one size bigger when compared to registered household processors. Their output averages on 400 tons per year.
They produce both green and black tea and buy raw material from leaf traders and household processors;
4. State-owned companies – These have an average annual production of 1580 tons per year. They mostly sell to State-owned VINATEA but are increasingly following a different path to export;
5. Joint-venture companies – These joint ventures between (foreign) private companies and Vietnamese state owned enterprises have the largest output with an average of 4000 tons per year. They entered the market in the late 1990’s and are the most technologically advanced actors in the value chain.
Due to the liberalization of the tea market, opportunities have arisen for tea traders.
These actors have found their place in the value chain in order to provide an alternative to the state owned companies (Tran, et al., 2004). Traders can be subdivided into:
1. Tea-leaf assemblers / traders – Using bicycles and motor bikes, these traders buy from cooperative and unlinked farmers and sell fresh leaves to processors or other traders. They are often very much needed since tea leaves have to be processed after four to six hours after plucking. Traders are generally larger in scale than assemblers and tend to use cars and trucks;
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2. Dried tea traders – Household processors are often linked to retailers and exporters via these traders. These traders also sell to traders in other provinces and thus provide inter-regional trade. They tend to have more capital than fresh tea traders and have a larger trade network. The studied group of dry tea traders had an average annual volume between 20 and 50 tons.
One of the end-station actors in the national value chain is the domestic retailer. Four main types of domestic retailers can be identified:
Small tea houses –The traditional tea retailer, often located in crowded areas, seems to be suffering from competition from the other retailers since their numbers are decreasing;
Tea bars – A more recent trend in tea drinking, these charge much higher prices than small tea houses;
Traditional tea retailers – These get supplies from the more famous tea areas.
Often they have regular customers. Expectations are that these retailers will receive strong competition from supermarkets;
Supermarkets – A growing route in the value chain is the one via the supermarket. Pricing is transparent, products are safe and shopping is convenient. Most teas are foreign, but domestic brands are also part of the product range.
The final actor in the value chain is the exporter. With the majority of all tea produced in Vietnam destined for export, the exporter is a major actor in the chain.
VINATEA is a state-owned company that held a monopolist position. But its market share has continued to decline to below 50% in 2004. VINATEA loses its market share to private companies. All export trade is channelled through VINATEA or private companies (Tran, et al., 2004).
Apart from direct chain actors, there is another actor worth mentioning; the Vietnam Tea Association (VITAS). Despite being the national association, the VITAS’ role is relatively small. The organization lacks member support. Improvement is needed if VITAS wants to become more successful in executing its tasks (Tran, et al., 2004).
Currently, Vietnam mainly produces low quality tea that only requires an arms- length relationship between farmers, processors and retailers/exporters. However, when higher quality tea is demanded (like organic tea and Snow Tea produced in accordance with GI rules), more integrated relationships have to be developed. This is because farmers do not have the knowledge or input to produce higher quality tea.
One method of achieving this is through farmer cooperation, another method is through private sector companies investing in supplier relationships (Tran, et al., 2004).
Page | 18 2.3 Overview of the tea sector in Ha Giang
According to the provincial Department of Agricultural and Rural Development (DARD) the total tea production area in 2008 was 15.949 ha (Nguyen, 2007). Of this 15.949 ha, reportedly 13,000 ha is “totally natural tea”, meaning that the tea is grown without the use of any fertilizers or pesticides (SNV, 2008). This is a clear signal of possibilities for organic tea production.
The tea area in Ha Giang is concentrated in the following districts: Vi Xuyen, Bac Quang, Quang Binh, Xin Man and Hoang Su Phi. A clear distinction within this area is to be made between the highland and lowland region. Appendix 1 provides a graphical overview of the situation.
The highland region covers the districts of Xin Man and Hoang Su Phi and significant areas bordering Xin Man and Hoang Su Phi of the other three districts.
Tea cultivation in the highland region, with altitudes between 400 to over 2000 meters above sea level, differs from the lowland region on: • 1) tea trees reach the size of fully fledged trees rather than the size of bushes due to deliberate neglect by the tea farmers, • 2) tea farmers do not apply any additional substances to the tea trees, they are grown completely natural, • 3) tea is harvested during only four periods per year between February and October.
The lowland region covers the remaining area of the districts of Vi Xuyen, Bac Quang and Quang Binh. Tea cultivation in the lowland region is intensive and fits the stereotype tea cultivation methods of Vietnam; infrequent harvesting and intensive usage of chemical fertilisers, pesticides and herbicides.
The following actors were identified by SNV (2008):
40,000 Tea farmers – Both in the highland and lowland regions, these are all small scale farmers. The average tea growing area of one farmer is around 0.5 ha. On average these farmers produce around 10 ton of fresh tea per year. Tea farmers are highly dependent on price setting by stronger chain actors and have a very limited access to funds.
400 Small collectors/processors – These actors collect tea in remote regions for resale and processing. Sometimes they own a small area of farm land (0.5 – 1 ha). There is no cooperation amongst these actors and they sell their products to medium and large traders in China and Ha Giang. They have a good relationship with the farmers and access to remote regions.
Small to medium processors – There are 20 medium scale processors and an estimated 100 small household processors. They collect their unprocessed tea from farmers and collectors. 10% of their produce is sold to the local market.
There is a lack of cooperation amongst these actors, and especially small household processors tend to have low quality tea. In general it can be stated that the small household processors sell their tea locally and the medium sized
